Auditing and Assurance Services 9th Edition by Alvin Arens,Mark Beasley,Randy Elder

Exercise 22

The accounting firm of Johnson and Johnson has decided to design a non-statistical sample to examine the accounts receivable balance of Francisco Fragrances, Inc., at October 31. As of October 31, there were 1,500 accounts receivable accounts with a balance of $5.5 million. The accounts receivable population can be segregated into the following strata:

Jonathan L. Gren, senior-in-charge of the audit, has made the following decisions:
• Based on the results of the tests of controls and risk assessment procedures, a low assessment is made for the risk of material misstatement.
• The desired confidence level is moderate.
• The tolerable misstatement allocated to accounts receivable is $155,000, and the expected misstatement is $55,000.
• All the balances greater than $50,000 will be audited.
Required:
a. Using the nonstatistical sampling formula included in the textbook, compute the suggested sample size for this test.
b. Gren confirmed the accounts receivable accounts selected and noted the following results:

Using ratio projection, what is the total projected misstatement? What conclusion should Gren make concerning the accounts receivable balance?